May 1 (Reuters) - There's been strong demand for FX options which allow owners to buy EUR/USD at preferential levels on a future date, and one strategy offers a significant discount to others and is being recommended by a major bank.

We highlighted this same strategy earlier in the week as it takes advantage of higher option implied volatility and topside over downside strike premiums.

EUR call/USD puts are regular vanilla options which demand an up-front premium for the right but not the obligation to buy EUR/USD at a pre-determined level and expiry date. However, that premium can be significantly reduced if adding a knock-out trigger (RKO) above the potential purchase level.

Option calculators assume the higher implied volatility and topside strike premiums make the attached trigger more likely to be touched before expiry and kill the option, hence the lower premium.

Nataxis have just released a recommendation to buy a 3-month expiry 1.1500 EUR call with an RKO trigger at 1.2200, as they think EUR/USD has the potential to reach 1.2100 in that time frame.

Assuming the current EUR/USD spot at 1.1325, this option has an upfront premium of 0.62% of EUR or 70 USD pips, so a break-even at 1.1570. By comparison, a regular 3-month expiry 1.1500 EUR call vanilla option (no trigger) costs 1.42% or 162 USD pips - break-even 1.1662.

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(Richard Pace is a Reuters market analyst. The views expressed are his own)